Daily Economic Update: May 5, 2025

Oracle Out

The Oracle has spoken and this time, with a succession plan, a warning about PE in insurance, and a reminder that good things come to those who wait.

The big news was that Warren Buffett announced that Greg Abel is set to become CEO at the end of this year. When asked about succeeding Buffett and his approach to capital allocation, Abel joked, “So um this bar is not too high.”  Buffett offered to be the Munger to Abel’s Buffett.

As expected the $300 billion cash pile got its fair share of attention.  With respect to that cash pile, Buffett made clear the massive cash pile isn't a strategic hedge or a handoff gift for Abel—just a reflection of how few opportunities meet his bar: understandable, attractively priced, and safe. ‘We’d spend $100 billion in a second,’ he said, ‘but things don’t come in an orderly fashion—and they never will.’

Buffett reminded us that for most investors a simple, passive investment strategy that stays the course will work extraordinarily well, but his job is to do better, so at times he’s made a lot of money by not being fully invested and waiting.

When it comes to waiting, Buffett reminded us that patience is what allows us to be prepared to act.  The dichotomy of being abundantly patient, but being prepared to act quickly when others can’t (think during the GFC).  He talked about his 5 second mind and ability to say no or yes to an opportunity quickly, something that only comes from a deep understanding of the types of investment opportunities that meet his criteria: “the main thing you have to do is you have to be willing to hang up after 5 seconds and you have to be willing to say yes after 5 .Absolutely."

In something I wasn’t expecting, Buffett and Jain talked about Private Equity’s expansion into insurance, noting the risks they take through leverage and credit risk.  Reminding everyone that insurance is a business where you get the gains up front while the losses may not show up for years and that things could “end in tears”.

Buffett also spent some time discussing U.S. exceptionalism and while I won’t delve into his comments on trade (they are everywhere), Buffett expressed belief that the stability of the U.S. currency and the societal stability it affords are true American assets. Declaring the U.S. to be “the best place to and time to be alive by miles..”

Perhaps my favorite line of the entire meeting was when Buffett was discussing the uneven nature of investment opportunities and comparing it to the increasing probability of death with age, that if you wait long enough, like death a good investment opportunity is certain. Buffett then mentioned that age records are held by females, and added, "I tried to get Charlie to have a sex change so he could test out whether but uh he did pretty well for being a male I'll put it that way."

The Real Investment Is In Life

As always Warren Buffett provided lasting wisdom for the audience. He reminded us that investing success requires a balance of patient preparation and the decisive willingness to act quickly when a true opportunity presents itself.  But in true Buffett fashion, his remarks highlighted that a fulfilling life and successful career are deeply influenced by choosing admirable people to associate with, fostering trust, maintaining a rational, long-term perspective focused on underlying value, and embracing hard work and continuous curiosity.  That’s a message that, like Buffett, will surely have a long shelf life. (You can find more wisdom from Buffett in today’s XTOD’s)

Some Things Need To Expire

And one of those things is the continual “enshittification” of the customer experience offered by most large companies. If you’re unfamiliar with the term, it’s a real word that is in the dictionary, and describes the process that ensues once a company has a network effect that is locked in they stop serving the customer and start to claw back all of the value for themselves. Think of, say a cable provider and your experience with said provider.

Perhaps taking advice from Buffett’s most recent shareholder letter, Lyft’s CEO, David Risher, tackled an unattractive truth: “the rideshare experience had become worse than it was a decade ago.”  In Lyft’s annual shareholder letter, Risher discussed the “enshittificaiton” process, “the ongoing degradation of a once-great product or experience, often in the blind pursuit of profit.”  Risher believes one of the reasons for this enshittification tendency is that we operate under an additive bias: humans like to add things to solve problems rather than taking things away. The result is we end up with products and features that offer “dubious value”.

Risher’s solution is “Falcon Mode”, the ability to maintain a broad, high-level perspective, but being able to “swoop down” into the details to determine the real customer pain points. It’s about really engaging in the customer experience so you can turn vicious cycles into virtuous ones. 

Just like Buffett would opine, you have to get past the noise, the superficial and get to the essential elements.

One Last Note From The Oracle As We Start The Week

Buffett: "nobody knows what the market is going to do tomorrow, next week, next month. And nobody knows what business is going to do tomorrow next week or next month," people still spend time talking about it. They do this "because it's.. it's easy to talk about and... it has no value". Buffett added, "I've never found anybody I wanted to listen to on the subject" 

Jobs Data Recap (ICYMI)

Seemingly old news now, but Friday’s Jobs numbers beat expectations, coming in at +177K with the unemployment rate holding at 4.2%.  Within the data there were some signs of the impact of immigration policy and tariffs with jobs slowing in areas impacted by both of those policy topics.

All Eyes On The Fed - But Really On Tariffs

The FOMC meets this Wednesday in what will likely be another snoozer of an episode for the Powell Rangers as rates are a lock to be held at 4.25% to 4.50%.  Nonetheless we enter the week with the S&P on a 9-day winning streak and back to 5,687.  The 2Y yield at 3.83% and the 10Y at 4.31%.  On the week ahead we get:

Monday: Drink Tequila, ISM Services, 3-year auction

Tuesday: 10-year auction

Wednesday: FOMC Decision

Thursday: BoE Decision, jobless claims, productivity

Friday: Fedspeak

And now proceed to enjoy your tariffed tequila for Cinco De Mayo. Or as Buffett might put it: drink the tequila, but know what’s in the bottle.

XTOD’s:

XTOD: Markets are pricing H4L island again with rising two year yields and rising stock prices.

XTOD: WB on leadership and organisational culture:  “Many people want to be managed, need help in being managed. Some don’t. Some you just leave alone.”  

“People want a manager that they admire. And they’re not going to admire them if those people profess to behave in one manner and behave in another.”  “It’s easier, and this is a sad thing, for an organisation to see its quality move downward than it is upward.”  “Once you start deviating downward, it is really contagious and it is hard to rebuild.”   “You really need someone that behaves well on top and is not playing games for their own benefit.”

XTOD: Warren Buffett at Berkshire Hathaway's 2025 annual shareholder meeting ⟶ "check your emotions at the door when you invest." #BRK2025 

Becky: “Has the recent market volatility presented Berkshire with opportunities?”

WEB: “Well, I can give you a good answer to the second part which is no. What has happened in the last 30, 45 or 100 days, whatever you want to pick up, this is really nothing. 

There's been three times since we acquired Berkshire when $BRK has gone down 50% in a very short period of time. During these three different times nothing was fundamentally wrong with the company at any time. But this currently? Is not a huge move. 

The Dow Jones average was 381 in September of 1929 it got down to 42 so that's like going from 100 to 11. This right now has not been the dramatic bear market or anything of the sort […] If it makes a difference to you whether your stocks are down 15% or not you need to get a somewhat different investment philosophy because the world is not going to adapt to you, you're going to have to adapt to the world.

And you will see a period in the next 20 years that will be what somebody in the market described one time as a “hair curler” compared to anything you’ve seen before. I mean that just happens periodically. The world makes big, big, big mistakes and surprises happen in dramatic ways and the more sophisticated the system gets the more these surprises can be out of right field.

That's just part of the stock market and that's what makes it a good place to focus your efforts if you've got the proper temperament for it. And it’s a terrible place to get involved if you get frightened by markets that decline and get excited when stock markets go up. I don't mean to sound particularly critical. I mean I know people have emotions but you gotta check them at the door when you invest.”

XTOD: “Pain is inevitable. Suffering is optional. Say you’re running and you think, ‘Man, this hurts, I can’t take it anymore. The ‘hurt’ part is an unavoidable reality, but whether or not you can stand anymore is up to the runner himself.”

― Haruki Murakami, What I Talk About When I Talk About Running

XTOD: Markets will recover long before things are clear and people will say "wow, amazing, so strange, makes no sense" even though that's the entire 200 year history of the stock market.

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Daily Economic Update: May 2, 2025

No sugar? Damn. Y'all ain't never got two things that match. Either y'all got Kool-aid, no sugar. Peanut butter, no jelly. Ham, no burger. Daaamn.

It’s Friday and Jobs Day in ‘merica.  Will this be the day that we get confirmation that the feelings in soft data will translate into the hard data?  

Consensus estimates seem to be for a headline number of somewhere in the +125K to +140K jobs with the unemployment rate holding at 4.2%.  Will there be any impact of tariffs in manufacturing jobs numbers?  Will there be any noticeable DOGE related job losses?  I’m sure some economists will dig through all the data to give you an answer to those questions shortly after 8:30am this morning.

Speaking of hard data, jobless claims rose led by a surge in claims in NY, which has been explained by some economists as tied to spring break in the NY school system - okay, I guess. 

Until then the Nasdaq hasn’t cared, it has found a way to reclaim its ‘Liberation Day’ level. Will that hold? 

Anyway, Jobs Day might steal headlines, but Buffett’s cash pile might end up stealing the weekend.

No Two Things That Match - Like Current Earnings and Future Earnings Estimates?

Maybe not as Apple and Amazon were both lower after hours. It is possible those stock losses bleed into stocks today, especially if markets find reason for worry in the Jobs data.  Speaking of those earnings, Apple saw strong iPhone demand and while they said that they don’t think it was driven by buyers looking to get in front of tariffs, the market didn’t seem to be buying it, sending the stock down in after-hours trading.  The extra $900mm cost impact of tariffs that Apple sees next quarter probably doesn’t help either.  Amazon also beat earnings expectations, but guided lighter than analysts would have liked and saw a little lighter AWS revenue than analysts forecasted. They’ve got their own well publicized tariff issues.

Nevertheless we enter today’s trading day with the S&P at 5,604, the 10Y Treasury at 4.22% and the 2Y at 3.71%.  Where will things sit after jobs - we’ll find out soon enough.

But The Oracle Awaits You This Weekend

Saturday is the Berkshire Hathaway annual shareholder meeting, starting at 9am ET you can tune into CNBC to watch.  The 94 year old, Oracle of Ohama, Warren Buffett, is scheduled to sit up on stage as usual and take questions - for 4 and a half hours.  There is little doubt that there will be questions about Berkshire’s $300 billion cash hoard and the sale of 2/3rd of their Apple position and about the eventual post-Buffett Berkshire. 

You can prepare yourself for the shareholder meeting by reviewing our post that covered Buffett’s most recent annual letter.  You know the one where he called out CEO’s who aren’t accountable for their mistakes, who don’t talk about the bad with the good, reminding them “if you start fooling your shareholders, you will soon believe your own baloney and be fooling yourself as well.”

On the Web version of this blog just type “Buffett” into the search and you’ll find yourself rewarded.

XTOD’s:

XTOD: If April jobs report tomorrow is weak, markets will freak. If it is strong, markets simply will already move on to May and June's jobs report.   The reason why we think May and June jobs reports are going to be very weak is because three sectors basically drive all of seasonal job growth in those two months, and at least 2 of those 3 sectors (leisure and hospitality, and logistics) will undershoot.  As   @FreightAlley  has already covered extensively, the logistics sector employment will be hit in May. So another way to look at this is, that the number of container ships departing China for US peaked on 4/16 and plunged 45% since...it takes 21 days to arrive at US...so this means that May's payroll period exactly falls in this period of import volume plunge.   But above all, it's the leisure and hospitality sector that will be account for the weakness in May and June.  Full explanation in our preview   @TheTerminal  : https://blinks.bloomberg.com/news/stories/SVLLOQT1UM0W

XTOD: SM was released this morning, marking the first monthly data point since Liberation Day. 

It beat expectations and is not giving indications that manufacturers "froze" or "hit a wall" post Liberation Day.  - *US APRIL ISM MANUFACTURING INDEX FALLS TO 48.7; EST. 47.9

XTOD: The more control you have over your attention, the more control you have over your future. And it starts with having enough courage to protect your time.  It's so easy to say yes. We want to be agreeable, helpful, liked. That's how time disappears and attention becomes fragmented: not in big chunks, but in a thousand small concessions.  What you trade your attention for is what your life becomes.

XTOD: Our job today and tomorrow is the same as it’s always been—to be good, to be wise, to stand up for what’s right, to resist what is wrong and evil. Nothing changes that. Nothing exempts us from that. Nothing prevents us from doing that.

XTOD: Warren Buffett: "If you're lucky in life, make sure that a bunch of other people are lucky, too."

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Daily Economic Update: May 1, 2025

Tech Earnings Trump GDP Flop as April Ends with a Rally

Markets shrugged off a weak GDP print as strong tech earnings from Meta and Microsoft pushed the S&P to 5,569 to close April on a high.  Meta and Microsoft earnings have the market poised for more gains on the day ahead with both beating estimates.  Meta continues work on their stand alone AI app to rival ChatGPT and Microsoft’s Azure had an AI revenue boost.  Score one for the bots. Massive user bases of both companies are the hopes of AI monetization.

That data showed that 1Q2025 GDP fell by 0.3%, but with so many “one-factors” you could drive a truck through it, and the market did.  I mean who cares about pre-tariffs numbers that were so distorted by pre-tariff imports and election related distortions in non-profit spending. 

If Data Falls In the Woods And No One Is Around Does It Make a Sound

And let’s face it nobody actually cares about ADP data, they’ll wait for Non-farm payrolls on Friday. 

So that leaves inflation, Core PCE was down but still running at 2.65% YoY buoyed by strong spending as people bought cars they feared would be tariffed.  The bad news is that consumers may be dipping into savings to pay for things.

Over in bond land, it seems like the stagnant part is beating the inflation part of the tariff narrative for the time being and I haven’t seen as much writing about foreigners retreating from the dollar of late.  Whatever the reason, the 2Y yield traded down to 3.61% and the 10Y to 4.18%.  

We’ll get more data and more earnings on the day ahead.

As You Await Tariff News You Might As Well Worry About Other Worries

Like unrealized losses on bank balance sheets.  Sure I mentioned that at the start of the week, but we’re only 2 years removed from SVB collapse and the Fed mentioned it in their Financial Stability Report and no one cares. 

But weren’t we just worried about financial fragility and rising yields at the start of April?

Why should we care about the hangover of unrealized losses sitting on bank balance sheets? I mean the Fed said there is something like $482 billion which is 30% of banks’ regulatory capital, which sounds at least a little concerning.  

So what happens in a slowing economy that might see job losses but not see the type of price declines that result in aggressive Fed cuts?  Could we see a double whammy of banks experiencing loan losses that deplete capital cushions while at the same time getting no relief on their existing unrealized losses in their fixed income portfolios?

If capital cushions erode and unrealized losses linger, it’s not hard to imagine a smaller regional bank becoming the next headline... just in time for election season.

I don’t know, but it’s definitely not getting much press.  Feel free to add your own thoughts in the comments.

XTOD’s:

XTOD: We're not going to cut the deficit, are we  The deficit is going to get even bigger, isn't it

XTOD: MSFT - @satyanadella “we processed 50 TRILLION tokens last month.”  AI nearly 50% of Azure’s + 35% y/y.  Demand is growing faster than supply, accelerated in the Q - expect capacity constraints post June.  Trying to get more data center capacity online to satisfy demand. 

XTOD: For the first time ever, the Treasury Borrowing Advisory Committee discusses stablecoins as a "new payment mechanism" and a potentially huge source of demand for US T-Bills.  Key observations:

1. Stablecoin issuers currently hold >$120bn in T-bills

2. Rapid growth in stablecoins could lead to incremental demand of ~$900BN for T-Bills (size of Bill market today is $6.4TN).

3. If stablecoins experience exponential growth, demand for USTs should be correlated, likely at the expense of bank deposits

4. Stablecoins could grow to $2 trillion by 2030 in response to "continued market and regulatory breakthroughs."

5. Stablecoins could disrupt traditional banks by drawing away deposits.

XTOD: “And it dawned on me that I might have to change my inner thought patterns… that I would have to start believing in possibilities that I wouldn’t have allowed before, that I had been closing my creativity down to a very narrow, controllable scale...that things had become too familiar and I might have to disorient myself.”  — ​Bob Dylan

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Daily Economic Update: April 30, 2025

GDP Now Or Never

There are genuine signs that some trade deals are getting done and positive news around removing “stacking” tariffs on autos. But at the same time, weakening U.S. data and a surge in pre-tariff imports suggest we may just be watching the calm before a downturn. Some pundits believe the knock on effect of the rush of imports into the U.S. currently is just foreshadowing the major decline that’s on the come, one that will lead to empty jobs and empty shelves.  You know a slump that could hit both employment and inventories hard. 

Don’t take my word for it, it’s what consumers tell the Conference Board, which reported that “business conditions, employment prospects, and future income—all deteriorated sharply, reflecting pervasive pessimism about the future. Notably, the share of consumers expecting fewer jobs in the next six months (32.1%) was nearly as high as in April 2009, in the middle of the Great Recession.”  And they reported that “average 12-month inflation expectations reached 7% in April—the highest since November 2022, when the US was experiencing extremely high inflation.”

Maybe the Atlanta Fed GDPNow is onto something with a negative 1.5% estimate of 1Q2025 GDP? Guess we’ll see if they’re right when we get  the first official release of GDP this morning.

Elsewhere in data, job openings fell broadly, but with no indications that firings are rising. 

Soft Data, Meet Hard Data

In addition to 1Q GDP we’ll see how inflation is behaving before diving into stage start of earnings from tech behemoths Microsoft and Meta. Which I guess means we’ll get more insight on whether the AI hype is still driving earnings or running out of steam.

We enter the trading day with the S&P index at 5,560, on a little winning streak.  While the 2Y and 10Y are both testing year to date low yields at 3.66% and 4.18% respectively.

Before we move into May flowers, let’s pause to remember the April that was.

Circus Apriles Recap
April 2025 was exactly the kind of financial circus we've come to expect, just replace the clowns with talking heads yelling about tariffs and the tigers with volatile market swings that happened seemingly because someone sneezed near a headline.

"Liberation Day" on April 2nd, supposedly the day we'd get clarity on tariffs, arrived with all the fanfare of a damp squib, offering slim odds of actually knowing anything. Markets spent the month ping-ponging around tariff news, including a delightful moment where news of a 90-day pause got promptly "body-slammed by reality". 

Treasury yields bounced around like a pinball as markets debated if tariffs meant inflation or recession. Auctions showed tepid demand, and the "safe haven" label felt more like a "hot potato", thanks to the tariff drama.

While the Dollar decided to take a break from its "exorbitant privilege," weakening to under 100 on the DXY for the first time in three years. The Fed, those dependable "Powell Rangers," stuck to their script: solid economy, "somewhat elevated" inflation, "elevated uncertainty," and the ever-popular "proceed cautiously". riveting stuff.

Beyond the daily whipsaws, the month offered plenty of reminders that perhaps we really don't know what's going on, but that's okay because nobody else does either. The existential dread of whether markets are in "bubble" territory lingered, prompting reflections on timeless wisdom like remembering "trees don't grow to the sky" and Howard Marks' evergreen advice that "overpaying is the greatest investment risk". So, as tariffs continued their starring role and the economic picture got murkier, April reinforced the timeless truth that navigating financial markets requires less prediction and more prudence, patience, and a healthy dose of "I Don't Know".

What Timeless Lessons Did We Learn This Month:

• Accept "I Don't Know": Certainty is an illusion; uncertainty is the norm, and admitting it is often the most truthful approach. 

• Patience Over Panic: Focus on long-term goals and underlying business value. Discipline beats drama.

• Your Behavior is Your Biggest Risk: Be mindful of emotional biases like fear and greed, and remember overpaying is a major risk.

• Filter the Noise: Tune out predictions and commentary, and feed your mind with wisdom, not noise.

• Face Reality: Persevere through tough times, learn from mistakes, and face reality as it is.

Embrace uncertainty, maintain patience, and focus on timeless principles of investing over futile prediction and market noise.  Sounds reasonable enough.

XTOD’s:

XTOD: Why didn’t electrical engineers forecast the Iberian electricity crisis? Looking forward to reading many op eds in the @FT  on how the study of electrical engineering is in a crisis. Researchers should go back to reading Maxwell’s Elementary Treatise on Electricity

XTOD: The jump in consumers' year-ahead inflation expectations over the last three months in the Conference Board survey is as swift as the rise seen over the course of many months in 2020-21

XTOD: The most socially accepted form of self-sabotage:  Overthinking.  It’s why you can’t make decisions, finish anything, or sleep without scrolling.

XTOD: My brilliant partner Antti Ilmanen’s latest on his lifelong obsession with expected returns. This one on how people actually form them (rational or not). Link below. https://t.co/QZFv1PRUDK

XTOD: Kobe Bryant on why not everyone is up for greatness. https://pbs.twimg.com/media/Gpn-FNfXIAA8o2x?format=png&name=900x900

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Daily Economic Update: April 29, 2025

I Was Going To Write More But..

I got a phone call from who I thought was the Editor In Chief at Bloomberg News, he said they were about to pick up my blog as a major feature column, similar to Matt Levine’s, but then at the end of the call they said I was going to have to wait a little longer.  So I waited around and didn’t get a lot of writing done.  Turns out it wasn’t the Editor at Bloomberg at all, too bad, my dreams of being the next Matt Levine, deferred.

Speaking Of Deferred Dreams

Seems like some other dreams remain deferred, like that of the trade war ending quickly and that of improving the U.S. fiscal deficit.  Treasury Secretary Bessent has news on both.  When it comes to China he said it’s up to them to de-escalate.  When it comes to the deficit, his department just said they need more money than they thought.  Now in fairness some of that is debt ceiling related.

Bullwhips

Remember during the pandemic there was a lot of talk about the “bullwhip effect” in supply chains? I’m a little surprised that I haven’t seen as much talk about this topic with the uncertainty surrounding tariffs.

What is the “bullwhip effect”, it’s the idea that fluctuations in demand at the retail level can get amplified as they move upstream (to the manufacturers) and can cause big impacts in inventories, production, logistics and prices.  The real problem is one of distortion, that tariffs create artificial demand signals and supply chains that are engineered to work in synchrony all of a sudden become unsynchronized.

Have companies learned from Covid, or are these bullwhip effects happening at smaller scales and the effects will be magnified if or when tariffs fully take effect.  Will we see hoarding, panic ordering, shortages followed by gluts?  And if you think that doesn’t matter, remember: gluts and shortages are exactly what made inflation so painful post-Covid.

Dalio Doesn’t Care, It’s Too Late

According to Ray most companies who are impacted by tariffs say it’s too late to get to a resolution that will reverse permanent damage.  And by damage he means a failure to deal with major structural imbalances in trade and capital between the U.S. and the rest of the world. Ray wants to see a coordinated approach to addressing the problems:  “In my opinion, what would be best is calm, analytical, and coordinated engineering and implementation, with the imbalances and the needs for self-sufficiencies treated as shared challenges, to produce the “beautiful" deleveragings and rebalancings that need to take place.”

But You Have To Agree On The Problems

According to Andrew Grotto at a recent Hoover Institute tariff conference, there is a foreign policy aspect to all this and sometimes threatening tariffs is better than pushing for changes with aircraft carriers.

Blockchain And AI Haven’t Solved Politics

The S&P closed at 5,529, up slightly. The 10Y treasury ended at 4.21% and the 2Y at 3.70%.  We’ll see what the data and earnings bring on the day ahead. Remember the themes of the week are earnings and labor markets.

XTOD’s:

XTOD: The PCE price index (due at 10 am on Wednesday) is expected to show core prices rose just 0.08% in March, according to forecasters who map the CPI, PPI and import prices into the PCE.  Headline prices are anticipated to have been flat (-0.01%) in March

XTOD: Iberia power cut leaves people trapped in lifts and trains, or stocking up at supermarkets http://reut.rs/3GrHoXy

XTOD: We have no idea how good we had it.  The only better 15-year eras were: Post-WW2 thru May 1957 ~18% annualized + tech boom in 1980-90s, 15 years peaking in April 1999 ~17% annualized.   This current 15-year peak was through February 2024 at ~16%/yr.

XTOD: Robots will surpass good human surgeons within a few years and the best human surgeons within ~5 years. @Neuralink  had to use a robot for the brain-computer electrode insertion, as it was impossible for a human to achieve the required speed and precision.

XTOD: You can literally just wake up and decide to be a completely different person.

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Daily Economic Update: April 28, 2025

Last Week Of A Crazy Month

It’s going to be a big week for earnings, with 4 of the Mag7 and a few big corporations on the slate which will pair nicely with a heavy week of jobs related data. 

We’ll start the week with the S&P 500 at 5,525.  Over in fixed income land the 10Y is 4.24% and the 2Y is 3.77%.  Where will these numbers be after Jobs Day Friday?

Long before tariffs hit the headlines, one of my key themes for 2025 was whether markets, or certain asset classes, were already in “bubble” territory. Remember back in January our conversation was about competing meta narratives, one being the proverb that “trees don’t grow to the sky” and the other, competing narrative that “this time is different” and there are increasingly companies that are not subject to laws of diminishing returns and earn increasing returns from scale.

Earnings ultimately matter and the risk of high valuations hasn’t been lost on the regulatory apparatus at the Fed.  As Howard Marks warned in his January investment memo, “On Bubble Watch”, put it: "overpaying is the greatest investment risk".

Ahh, whatever. Who needs investment wisdom when you can just do what everyone else is doing and create a Bitcoin perpetual motion machine. 

If You Don’t Know Now You Know

The Federal Reserve released their most recent Financial Stability Report on Friday, April 25th, and you’d never guess what they found, that the most frequently cited near-term risks to U.S. financial stability included risks to global trade, policy uncertainty, and U.S. fiscal debt sustainability. Novel, that’s why they pay those guys the big bucks I guess. 

Setting the obvious aside, here are a couple of items that might have fallen out of the headlines with all the focus on trade:

1. high asset valuations coupled with hedge fund leverage that had been at or near all time highs, were certainly factors that probably didn’t help market volatility this month

2. Banks are still sitting on fair value losses on their fixed rate assets that are in the hundreds of billions

3. CRE has ~$1 trillion of loans maturing this year.

But Trade Still Rules The Day - And The Issue is Friction

Economist Allison Schrager had a piece last week which was subtitled ‘Revenge of the neoliberals’ discussed her opinion on the real problem of the globalization, economic deregulation, financialization, etc. that have come from “neoliberalism”, explaining:

“The real problem was the market frictions we imposed that made it hard for people to build, develop new economic projects, get a decent education, or just move. There were also many toxic social issues. Seeing these failures up close is why I became an economist—I wanted to find solutions. I did: better development of human capital, free markets, with a robust safety net. It’s not complicated.”

“Market frictions—even well-intentioned ones that try to freeze an economy in time or turn back the clock—only make things worse. Tariffs and industrial policy are just another form of friction. And frictions are always tempting in times of change that bring uncertainty—they slow things down. But it would sound absurd now to say we need to bring factory workers back to agriculture—yet people said the same thing 100 years ago. And that desire made the transition to industrialization messier than it needed to be, too.”

My summary is: You can't fix frictions by adding more frictions; the real solution is policies that boost productivity and enable economic flexibility.

What are the odds we’ll get more tariff headlines this week, my guess is pretty high.

The Week Ahead:

Monday: No major reports, I’d check on Shaduer Sanders

Tuesday: Conference Board Consumer Confidence, JOLTS, Coke and Visa earnings

Wednesday: 1Q2025 GDP (1st), PCE, ADP, MSFT and META

Thursday: ISM Mfg and Construction Spending, Jobless Claims, AMZN and AAPL

Friday: Jobs Day in ‘merica, Berkshire Hathaway

XTODs:

XTOD: Warren Buffett: "I think people's investment would be more intelligent if stocks were quoted about once a year."

XTOD: In #investing, you get what you don't pay for. Costs matter. So intelligent investors will use low-cost index funds to build a diversified portfolio of stocks and bonds, and they will stay the course.   ~John C. Bogle

XTOD: “Let me never fall into the vulgar mistake of dreaming that I am persecuted whenever I am contradicted.” — Ralph Waldo Emerson

https://x.com/kejca/status/1915839912479277250

https://x.com/bogleheads/status/1915828508078604602

https://x.com/tferriss/status/1916497384198013123